EU Approves BAE Systems and Finmeccanica Merger

The European Commission has granted clearance under the EU Merger Regulation to the proposed acquisition of the avionics and communication business of BAE Systems, the UK defence contractor, by Italian defence company Finmeccanica, and the de-merger of their AMS joint venture. These concentrations are part of the so-called ‘EuroSystems’ transaction that the parties concluded in January 2005. The Commission considers that these transactions do not raise competition concerns in Europe since overlaps are limited and other large and capable players compete for these military equipments. It has therefore concluded that the operation will not significantly impede effective competition in the European Economic Area (EEA) or any substantial part of it.

BAE Systems (“BAES”) and Finmeccanica are international manufacturers of defence and commercial aerospace systems, including military aircraft, helicopters, surface ships, submarines, radar, avionics, communications, electronics and weapons systems.

Finmeccanica and BAES have a jointly controlled company AMS, which is active in command and control systems, radar and simulation systems for the land and naval military markets. This joint venture will be dissolved and Finmeccanica and BAES will respectively acquire its Italian and its British business activities. At the same time, Finmeccanica will acquire control of BAES’ UK military avionics and communication systems.

There are very few competitive overlaps between Finmeccanica’s current avionics & communications activities and the business to be acquired from BAES and no horizontal overlaps result from Finmeccanica and BAES acquiring sole control of respectively the Italian and UK part of the AMS joint venture.

Whilst both Finmeccanica and BAES hold leading positions, particularly in the UK and in Italy, the market investigation confirmed that sufficient viable alternatives, both European and US defence groups, will remain after the merger. Moreover, and given these circumstances, the demand side, i.e. the defence ministries, are considered sufficiently powerful to counterbalance any anti-competitive attempts of the new entity.

The Commission’s attention was drawn to a possible impact of the concentrations on the UK markets for helicopters and naval surface vessels, in which respectively Finmeccanica and BAES hold strong positions. However, the Commission concluded that Finmeccanica’s strengthened position for avionics and BAES obtaining sole control over AMS UK would not allow them to exclude competitors from the market. In both cases, the market investigation confirmed that alternative providers remain, and that competition in the UK helicopter and naval vessel markets is mainly determined by the procurement policy of the UK Ministry of Defence, which is based on open competition between suppliers, and that situation will not be significantly altered by the present concentration.

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